Altra adds Portescap and Kollmorgen in $3bn deal

08 March, 2018

The electromechanical power transmission and motion control products manufacturer Altra Industrial Motion is buying four businesses from Fortive's Automation and Specialty (A&S) platform – including its Kollmorgen, Thomson and Portescap brands – in a $3bn deal that will double Altra's revenue to around $1.8bn and increase its EBITDA to around $350m, before synergies estimated to be worth more than $50m. The combined company – which Altra says will be a “global leader in the power transmission and motion control industry” – is expected to generate cumulative five-year free cashflows worth more than $1bn.

The combined global business will have around 9,300 employees, 52 manufacturing facilities, and more than 25 engineering/service centres worldwide. Its portfolio will include Boston Gear, Stromag, Bauer Gear Motor, Huco, Warner Electric, Kollmorgen, Thomson, Portescap and Jacobs Vehicle Systems.

Altra is paying Fortive’s shareholders $1.4bn in cash and $1.6bn in new shares. Fortive will combine the four businesses in a new wholly owned operation that will then merge with part of Altra. Upon closing, current Altra shareholders will own about 29.4 million shares or 46% of the combined company. Approximately 64.4 million of diluted Altra shares are expected to be outstanding upon closing, with Fortive shareholders owning 35 million shares or 54% of the combined company.

According to Altra, the deal will expand its position “significantly” by bringing together its mechanical and electronic capabilities in engineered power transmission technologies such as couplings, clutches and brakes and gears, with Fortive A&S’s electric, electronic and software strengths in precision motion control, including servomotors, direct drives and linear automation. It will also improve Altra’s access to higher-growth, higher-margin and higher-technology markets, as well as increasing its scale and global reach. It will enhance Altra’s financial profile, with sales and earnings growth expected to generate substantial free cashflow, allowing the company to decrease its leveraging rapidly.

“This combination creates a focused global leader in the power transmission and motion control industry and is an important next step in our strategy to accelerate growth and build value,” says Altra’s chairman and CEO, Carl Christenson. “With Fortive A&S, we gain exposure to industries with attractive secular growth dynamics – including the medical, robotics, factory automation and food and beverage industries. We believe that our significantly expanded position across the technology continuum will uniquely position us to drive innovation and better serve our customers across all markets. We look forward to combining the strengths of our businesses and capitalizing on the opportunities inherent in this transaction to deliver enhanced value to shareholders.”

Excluding its Hengstler and Dynapar businesses, Fortive A&S generated approximately $907m in revenues and $220m in unaudited EBITDA (approximately 24% margins) for the fiscal year ended December 31, 2017. “We are excited about this powerful and unique opportunity to combine our highly complementary businesses in a transaction that will benefit all Fortive and Altra shareholders, customers and employees,” says the company’s president and CEO, Jim Lico. “This combination of powerful brands and remarkable people creates an organisation well-positioned to capture robust Industry 4.0 growth opportunities.”

According to Altra, the deal will:

• Expand its capabilities across the technological spectrum Adding engineered servo, direct-drive and specialty miniature motor technologies, along with precision linear automation products and capabilities, to Altra's power transmission line-up, will allow the combined company to offer a broader suite to a larger customer base. Combining Jacobs Vehicle Systems' engine-braking products with Altra's clutch brake offering will expand its addressable market and provide a “unique” portfolio of braking technologies.

Altra's $3bn deal with Fortive will add advanced motion control technologies to its existing portfolio which is focused mainly on mechanical components such as couplings (above)

• Increase its exposure to markets with “attractive secular trends” The combined company will maintain broad market coverage, with a stronger position in higher-growth vertical markets, such as medical, materials-handling and robotics. The combination also reduces Altra’s exposure to more cyclical markets such as mining, renewable energy and oil and gas.

• Establish an attractive financial profile with significant cashflow generation The transaction will double Altra's revenue to about $1.8bn and increase its EBITDA to approximately $350m (before synergies), or 20% margins for the 12 months ended December 31, 2017.

• Deliver achievable cost savings to drive synergies The combined company will have enhanced strategic flexibility and scale, with opportunities to leverage cost synergies by applying Fortive A&S's supply chain expertise and Altra's Operational Excellence Program. The transaction is expected to generate annual cost synergies of $46m by year four. The combined business will also have the opportunity to expand products manufactured by Altra and Fortive A&S into new geographies and markets, with the potential to generate revenue synergies resulting in $6m of additional annual EBITDA by year four.

If the deal closes as hoped by the end of 2018, the combined business will continue to be led by Altra's current chairman and CEO, Carl Christenson, with Christian Storch remaining as chief financial officer. Altra's senior management team will be expanded to include both Altra and Fortive A&S employees.

Altra’s headquarters will remain in Braintree, Massachusetts. Following completion of the transaction, the combined company is expected to have approximately 9,300 employees worldwide, with approximately 4,600 coming from Altra and 4,700 joining from Fortive A&S.

Fortive’s instrumentation and industrial technologies portfolio generated revenues of $6.7bn in 2017. It holds leading positions in field instrumentation, transportation, sensing, automation and franchise distribution. Fortive is headquartered in Washington state in the US and employs more than 26,000 people in more than 50 countries.